The past week witnessed rather volatile trading in gold bullion as the price declined to the 50-day moving average ($1,369), thereby retracing 62% of its three-week advance from the middle of November to early December. (Read more about Fibonacci retracement numbers here.) It will be very bullish for gold to hold these levels, but failing that it will take a decline below the November reaction low of $1,337 to indicate a larger correction.

Source: StockCharts.com

The point-and-figure chart also indicates $1,330 to be a critical support level. (On a P&F chart price movements are combined into either a rising column of X's or a falling column of O's, with each column representing either an uptrend or a downtrend. These charts eliminate the insignificant price movements that often make bar charts appear "noisy", removing the often misleading effects of time from the analysis process and making it much easier to recognize support/resistance levels.)

Source: StockCharts.com

Considering weekly data, it is shown clearly that gold remains in a very consistent uptrend. Although the lower boundary of the rising price channel indicates support only at $1,240, one should not lose sight of the upper boundary occurring at about $1,155. Once gold has completed its nascent correction, the yellow metal could therefore see a fairly sharp advance.

Source: StockCharts.com (hat tip: Arthur Hill)

The final words go to Richard Russell, La Jolla-based writer of the 52-year old Dow Theory Letters: "I'm looking at gold as 'the last man standing'. Since gold is pure intrinsic wealth and it is outside the system, it can't go bankrupt and it can't go down to a level of zero value. In [an era] of deleveraging and deflation and slow growth, I'm picking gold as the best safe-haven. If you have a better idea, send me an e-mail ...

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